Why Sibor's 16bp advancement in 2015 is "unusual" in Singapore

Versus other liquidity-rich markets.

In Singapore, the 1M Sibor and 1M SOR have advanced by 16bp and 18bp since the beginning of 2015.

According to a research note from BNP Paribas, this is unusual in Singapore compared to other liquidity-rich markets such as Hong Kong and Taiwan.

The report said it believes the recent rise in Sibor has been driven by capital outflows prompting the Monetary Authority of Singapore (MAS) to intervene to prevent the SGD breaking the lower boundary of the nominal-effective-exchange-rate (NEER) policy band, as evidenced by the drop in FX reserves.

This consequently drained liquidity from the market and pushed up interbank funding rates.

Here's more from BNP Paribas:

While our Asean economist does not believe Singapore will change its monetary stance on S$NEER in its monetary review in April, MAS may widen the policy band to allow the S$NEER to trade lower.

We expect further upside on Sibor in 2015 given: 1) further SGD depreciation against the USD, and 2) a US rate hike after 2Q15.